Billions of pounds were wiped off share prices across the world as investors took fright at mounting evidence that political paralysis in the eurozone has sparked a global economic downturn.

News that just 69,000 jobs were created in the US last month, the lowest figure for a year, underlined growing fears that weak demand from crisis-hit Europe is hitting businesses thousands of miles away.

In the UK, evidence of a sharp drop in manufacturing output in May increased the chances that the Bank of England will unleash a fresh round of recession-busting quantitative easing when it meets next week to cushion the economy against the turmoil across the Channel. With Spain at risk of being driven to accept an emergency bailout as it struggles to shore up its banking sector, the collapse of confidence in the eurozone appears to be rippling across the globe.

Firms in the US have dramatically slowed the pace of hiring, and the official unemployment rate rose in May, for the first time in nine months, up one percentage point from 8.1% in April.

The jobs report is bad news for Barack Obama, with the economy expected to be a major election battleground. The US president said: "We've got responsibilities that are bigger than an election; the economy is still not where it needs to be."

In the UK, which relies on the rest of Europe for almost half of its exports, the manufacturing PMI, a closely watched survey of industry, slumped from 50.2 to 45.9, the second steepest fall in its 20-year history, and well below the 50 level that signals growth.

George Buckley, of Deutsche Bank, described the report as a game changer and suggested the Bank of Engfland could even decide to cut interest rates for the first time since 2009, from their record low of 0.5% to just 0.25%. "Since May's meeting, the case for providing more stimulus has strengthened. Most importantly, the eurozone crisis has intensified," said Vicky Redwood, UK economist at Capital Economics.

With the economy already in a double-dip recession, the Bank of England governor, Sir Mervyn King, has warned that the UK will not remain unscathed with the eurozone "tearing itself apart".

China, too, is suffering what increasingly looks like a sharp slowdown, with manufacturing showing its weakest expansion since December, according to the latest health check of the sector. A growing number of analysts now expect Beijing to be forced to take action to underpin economic growth in the coming months.

"Business surveys around the world today have shown a further downturn in the global economic environment," said Chris Williamson, chief economist at data provider Markit.

The universally gloomy news revived grim memories of late 2008 and early 2009, when the collapse of Lehman Brothers sent the world's major economies into a tailspin, sparking what came to be known as the Great Recession.

The FTSE100 closed down more than 60 points at 5260.19, its lowest level since 25 November, while the Dow Jones on Wall Street closed down 275 points at 12,118,its biggest decline since November and its lowest level of the year.

Eurozone bourses were even worse hit by continued uncertainty about Spain's predicament will be resolved, with the German DAX index down 3.4%, and the French CAC losing 2.2%.

The price of major commodities fell amid fears of poor demand from across the globe. Brent crude oil lost more than 3%, dropping to $98.77 (£64). Gold prices jumped 3%, the biggest one-day rise in two years, as investors sought havens from the turmoil.

Michael Derks, chief strategist at the online broker FxPro, said: "When the tide is this strong, there is no point in swimming against it: simply get in your lifeboat, and hope for the best." With yet another crisis summit of Europe's leaders scheduled for this month, they are facing more pressure, not least from the White House, to provide a once-and-for-all resolution to the uncertainty about eurozone that has been unsettling markets for months.

Ireland's voters opted to back the so-called fiscal compact that imposes strict budget discipline on eurozone members by 60-40, assuaging fears that they would register a protest against austerity. But the vote gave scant comfort to investors who are concerned about Spain's predicament, and forthcoming elections in Greece, which could return anti-austerity parties.

There was some evidence that Germany, which has taken a hardline approach to enforcing austerity measures on struggling eurozone economies, may be softening, with a finance ministry spokesman backing calls from Brussels for Spain to be given an extra year to hit its target of a 3% budget deficit.

"We support Spain in its efforts to implement the necessary measures. But we also recognise that, because of negative economic developments, it will be difficult for Spain to reach its goals," the spokesman, Johannes Blankenheim, said. Asked if that meant Madrid should be given more time, he replied: "I think that's what I've been saying."

The European Central Bank will meet in Frankfurt next Wednesday and could decide to take fresh measures to underpin confidence and prop up the struggling European banking sector. Its president, Mario Draghi, has urged European leaders to show "vision" in tackling the twin challenges of sickly banks and hard-pressed governments.